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BT and Sky may play nice in next Premier League rights bid, UBS suggests

BT and Sky's content sharing deal removes risks over the next bidding round for the broadcasting rights to Premier League football, UBS said
BT
BT and Sky have agreed to supply each other's content to customers

BT Group PLC (LON:BT.A) and Sky PLC (LON:SKY) have little incentive to bid aggressively for the next auction of Premier League broadcasting rights after agreeing to supply each other's content, analysts at UBS said.

The companies on Friday announced a deal that will allow BT to sell Sky’s Now TV video streaming service – which includes Sky Sports, Sky Cinema and Sky Atlantic – to its customers and for Sky to offer BT Sports channels to its viewers.

READ: BT shares gain on deal with rival Sky to supply each other's TV channels

BT and Sky have been long-time competitors in the bidding war for Premier League and Champions League football rights with overall costs having risen 70% over the past two auctions. For this season’s Premier League rights, BT has paid £320mln while Sky has paid £1.4bn.

“The tender for the next cycle of Premier League rights (2019/20 to 2021/22) has just been issued with the auction expected in February 2018, and we think consensus is factoring in inflation of up to +40%,” UBS said.

“However, with this reciprocal content deal, we think there is limited incentive for either Sky or BT to bid aggressively in the auction.”

UBS said BT’s share price has been weighed down by concerns about rising costs of securing sports rights as well as uncertainty over capital expenditure in its planned broadband network upgrade and its pension deficit.

It thinks the content deal with Sky significantly reduces the risk around the Premier League rights auction for BT. 

“With BT now having access to an improved content offering, we think its triple-play offering will be more competitive versus both Virgin Media and TalkTalk,” UBS said.

READ: Sky says it could shut down Sky News if it gets in the way of takeover by Murdoch's Fox

The deal also lowers the risk for Sky, UBS said, adding that it may allow for greater visibility on longer-term profitability.

BT's distribution of Now TV should also improve Sky's net adds momentum, UBS said.

“While the deal will lead to higher wholesale programming costs for Sky, we expect this to be offset by additional revenues from Sky subscribers paying Sky directly for BT Sport rather than BT.”

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